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FMCG cos hit by Egypt crisis

The on-going political turmoil in Egypt has forced many Indian consumer companies to temporarily suspend operations, giving rise to fears that earnings might be affected in case of a protracted crisis.

business Updated: Feb 03, 2011 15:40 IST

The on-going political turmoil in Egypt has forced many Indian consumer companies to temporarily suspend operations, giving rise to fears that earnings might be affected in case of a protracted crisis.

Firms such as Marico, Dabur, Asian Paints have shut down their Egyptian units and are watching the situation closely, officials said.

For more than a week now, the African nation has been convulsed by street protests, demanding an immediate end to President Hosni Mubarak's 30-year-rule.

"If the unrest in Egypt is resolved over the next few weeks, we would see a minor impact on business on the supply side. However, if it continues for a longer period of time then the slowdown in Egypt and the neighbouring economies could impact FMCG demand," said an analyst with Edelweiss Capital.

Egypt has been quite attractive to Indian FMCG players as it offers tax cuts, preferential trade treaties, and speedy approvals for business, in addition to high growth.

Indian consumer firms have been tapping Africa of late as it opens up new growth avenues with rising costs and fierce competition at home squeezing profits.

Crisis Hits
"There have been mass demonstrations and disruption of public life (in Egypt). Consequently, we have temporarily closed Marico's factories as a safety measure," the company said in a filing to the stock exchange.

With Egypt as a manufacturing hub for the entire MENA (Middle East and North Africa) region, Marico said prolonged closure would impact supply to the entire region.

The MENA region accounts for 7-8% of Marico' sales revenues. Its international business from Bangladesh, MENA and South Africa comprise 23% of the group's turnover

"We have initiated as a back-up measure, plans to supplement the MENA supply chain with supplies from India," it said.

However, analysts said the cost of delivery would be a cause for worry if the firms look for exports from India or elsewhere.

Rival Dabur, which draws 2.5-3% of its revenues from Egypt, on Monday evening shut down its sole hair oil plant there that caters to local demand, a spokesman told Reuters.

"If the unrest is resolved over the next few days and weeks, we would not see much of any impact on business. However, if the unrest continues for a longer period of time, there might be some impact," Dabur said in a statement.

"Dabur has manufacturing facilities in Nigeria and the UAE. For them it will be easier to source products from there," Shirish Pardeshi, an analyst with Anand Rathi Securities, said.

Dabur's international business spans the Middle East, North and West Africa, EU and the US through its brands Dabur and Vatika, and makes up about 16% of consolidated revenue.

Emami, which last week said it had acquired 90.59% in Pharma Derm SAE, said it will have to wait longer before it can start operations there, Prashant Goenka, director, international business said.

Paints maker Asian Paints shut operations at its two plants in Egypt from January 29 and will resume operations once normalcy returns, the company said in a statement.

About 5% of the company's sales come from Egypt, analysts said.

"As of now it's more of a sentimental impact. No one knows how long this uncertainty will continue and if it were to continue for long, it would surely have a significant impact on Indian businesses in Egypt," Ambareesh Baliga, Vice-president, Karvy Stock Broking, said.